Deficit: An excess of expenditure or liabilities over income or assets in a given period.
My question is, why is existing debt not calculated in to deficit calculations. Surely existing debt is a liability and should be calculated as such?
Example: I have £5000 debt and i earn £2000 per month and i spend £2500 per month. The deficit is £500, but shouldn’t the deficit be £5500. Would the payments on the debt be seen as liability that could be calculated in to the deficit? So if my debt payments is £200 per month then that £200 would be apart of the £2500 per month.
Why is the existing debt not seen as a liability?
Because when someone says “deficit” they are generally talking about the “budget deficit”…as in the difference between inflows and outflows in a particular fiscal year. The “national debt” is the sum total of all previous budget deficits and surpluses (basically).
Because the existing debt does not need paid off in the given period, similarly the assets even if they could easily be sold to pay off the debt do not show up either. The accounting world separates the state of affairs or balance sheet:assets, liabilities and equity, AND the income or cash flow statements. The income minus expenses leaving a deficit in the time frame would show on the income statement.
OK so instead of being An excess of expenditure or liabilities over income or assets in a given period excluding debt and assets. It is just an accounting term that shows profits minus loss within a specific period. Makes me think it was kind of a stupid question.
Well, it was a basic accounting question. If you’re not familiar with accounting, then you really wouldn’t know. But as Bogart said:
Assets & Liabilities (i.e. total debt) are shown on “balance sheets”—snapshot of the whole operation
Income & Expenses (i.e. deficits) are shown on “cash flow statements”—view of operations over a specific period